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The IRS Gets It's Hooks Deeper Into PayPal

Under the new legislation, PayPal will be required to report to the IRS the total payment volume received by PayPal customers in the US who:

Receive more than $20,000 in gross payment volume in a single year, AND

Receive 200 or more payments in a single year.

The IRS changes will apply to all payment providers, including PayPal. They will take effect on January 1, 2011, with the first reports going to the IRS in early 2012. Our goal is to help PayPal merchants to understand and comply with the new requirements.

If you meet the stated thresholds, you will be required to verify your identity by adding a SSN/TIN/EIN to your existing account. If you are currently using a Personal or Premier account, you will be required to upgrade to a Business account.

Will All Merchants Receive 1099s?

No. Only merchants who receive over $20,000 in gross payment volume AND receive 200 or more payments in a calendar year will receive Form 1099-K electronically or by mail.

Are personal payment transactions received counted in the total that will be reported to the IRS?

Yes. All payments received by an account will be used when calculating the total payment volume received.

How is the $20,000 calculated? Will it be calculated based on net or gross transaction earnings?

The $20,000 will be calculated by looking at a merchant’s gross sales volume.

It makes sense to register your business with the tax authorities and have a separate bank account for all business transactions simply to eliminate stress and comply with the law. Also, you can easily deduct business expenses from profits and get tax refunds.

Make it a habit to keep records of all money going in and out of your business so it is easy to prove what you did and not hide anything.

I'm not US based so I don't know for sure what is best for US-based affiliates etc.

It makes sense to register your business with the tax authorities and have a separate bank account for all business transactions simply to eliminate stress and comply with the law. Also, you can easily deduct business expenses from profits and get tax refunds.

Make it a habit to keep records of all money going in and out of your business so it is easy to prove what you did and not hide anything.

I'm not US based so I don't know for sure what is best for US-based affiliates etc.

I am US based and have been doing exactly what you said for years. Business registration and strict book keeping, etc. My EIN is already registered with PayPal and Authorize.Net.

Originally Posted by Sami4u

If had any big item for sale house, car I would never allow it to be sold with paypal.

That's unsafe even without IRS intervention. The buyer could do a false chargeback. And if you use craigslist instead.. well we all know anything can happen there.